Pre- Submission Report
SUPPLY CHAIN MANAGEMENT PRACTICES IN INDIA
(A CASE STUDY OF TISCO)
FOR THE AWARD OF THE Ph.D. DEGREE IN COMMERCE
(Manoj Kumar Rakesh)
Dr. K. K. Agarwal
DEPARTMENT OF COMMERCE
MAHATMA GANDHI KASHI VIDYAPEETH
SUPPLY CHAIN MANAGEMENT PRACTICES IN INDIA
(A CASE STUDY OF TISCO)
Today’s world is moving in turbulent economic environment, firms are striving for ways to achieve competitive advantage. One of the approaches is to manage the entire supply chain to reduce costs and improve performance to create competitive advantage and business success. Supply chains are now at the center-stage of business performance of manufacturing and service organisations. This research explores and investigates how high technology firm’s uses supply chain management to gain competitive advantage and increase business success. This research provides a theoretical framework to understand a firm’s performance and argues that supply chain management will help a firm to be competitive and successful.
In order to leverage on existing supply chain investments, firms in the Steel Manufacturing industry, like many other industries, are faced with the challenge of being able to align their supply chain strategies with the effective use of technology. To this end, manufacturing firms are changing their focus from a simple product-focus, to a more customer focused approach, achieved through the development of more viable, longer-term relationships with their customers. Many firms in this industry sector have realised that the Internet is an effective tool that can be used to build these relationships. This is achieved by adding value to the services a firm offers to its customers (Kalakota and Robinson, 2000). The result of this approach is a shift in supply chain management practices, whereby, a business to consumer link is added in the supply chain, typically at the distribution end (Anderson, 2001) the business to consumer link is facilitated through the integration of Internet technologies into the supply chain.
Supply chain management is not a static concept or solution. Instead, new advances and techniques for supply chain management continue to mushroom. This tremendous growth in new ideas and processes is starting to influence and change the business processes and models of companies. Hence companies have many choices in selecting programs in supply chain management. In making their choices, companies need to plan for effective supply chain management, in order to gain competitive advantage.
A theory that has gained momentum in the last few years is the concept of supply chain management. In recent years, there have been numerous advances and developments in supply chain techniques and management. One of the reasons is that as trade barriers drop and markets open, competition have become more intense – hence companies need to be more competitive and cost effective. An initiative to help achieve this is a supply chain management program. Supply chain management is the management of upstream and downstream activities, resources, and relationships with suppliers and customers, which is required to deliver products or services. In theory, if this is done well it will lead to competitive advantage through differentiation and lower costs as suggested by Porter (1980).
Supply Chain: All the necessary activities required for creating and delivering products and services to customers.
Supply chain management: This includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, distribution across all channels, and delivery to the customer (Supply Chain Council, 2001).
Supply chain management: According to the Council of Supply Chain Management Professionals (CSCMP), Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.
E-Procurement: E-Procurement is essentially an Internet/Intranet based purchasing application or hosted services that streamlines buying trading partners, maximizes trade efficiency across the entire supply chain, and provide strategic e-commerce capabilities in internet time (ITRG, 2002).
Logistics: The management and movement of product and services, including storage and warehousing, and their transport via air, land, and water (Coyle, Bardi, and Langley, 1988).
Logistics: The management and movement of product and services. This includes storage and warehousing of products, and their transport via air, land, and water.
Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers’ requirements.
Tata Steel: (formally known as Tata Iron and Steel Company Ltd.) is the largest private sector steel company in India in terms of domestic production. Ranked 258th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies. Tata Steel is also India’s second-largest and second-most profitable company in private sector.
SAP AG: a multinational software development and consulting corporation, which provides enterprise software applications and support to businesses of all sizes globally. Headquartered in Walldorf, Germany, It was founded in 1972.It the largest software enterprise in Europe and the fourth largest software enterprise in the world. The company’s best known product is its SAP Enterprise Resource Planning (SAP ERP)s.
List of SAP Products
SAP Business Suite
SAP ERP (Enterprise Resource Planning)
SAP CRM (Customer Relationship Management)
SAP SCM (Supply Chain Management)
SAP SRM (Supplier Relationship Management)
SAP PLM (Product Lifecycle Management)
SAP Business One
SAP Business ByDesign
SAP Business All-in-One software
Objective of the study:
The present study explores and investigates how Tata Steel uses supply chain management to gain competitive advantage and increase business success. This study provides a theoretical framework to understand a firm’s performance and argues that supply chain management will help a firm to be competitive and successful. The objective of this study is to explore and investigate how firm scope, design, and implement supply chain management. It also tries to find the advances and new ideas in supply chain management. Because the majority of companies cannot compete on the basis of price alone, some sort of differentiation is necessary. The Internet coupled with other computer technologies, allow companies new avenues to distinguish themselves from their competition. One of these avenues is supply chain management, supply chain management allows a company to reduce its costs, create opportunities to increase value for its customers and increase its competitive ability in the market. Most importantly, this study endeavors to determine how Tata steel implemented supply chain management ERP Software that can provide competitive advantage
In fulfilling this objective, this study addresses the following research issues:
1. To see the effect of implementation of supply chain management technique on the
productivity of the company, across the period of time.
2. To analyze the profit margin of the company before and after implementation of
supply chain management ERP package.
3. To study the inventory of the company before and after implementation of supply
4. To make a study of the working capital management of the company before and after
implementation of supply chain management.
5. To compare the reduction in the cost of production after implementation of Supply
6. To provide suggestions for the improvement of efficiency and functions of the
Scope of the study:
The present study covers a period of ten years from 1999-2000 to 2008-2009 as adequate information and data for this research were only available for this period. The data is based on a single company operating in Jharkhand India. This research focuses on how Tata Steel implemented ERP system, strategy and technology. To answer the primary research question, a number of sub-questions have been developed.
In order to reach the objective of the study the following major hypothesis were formulated.
1) Implementing SAP has made a reduction on the working capital of the company.
2) There has been a decrease in the volume and value of inventory of the company.
3) There has been a decrease in cost of production of the company and increase in
5) There has been improvement in the customer order management and customer
6) Supply chains of this company contribute to competitive advantage and long term
profit and health of the company.
Methodology of the study:
This study employs the qualitative research process using single case studies. There are several reasons for this:
* Since the focus of this research is on high technology companies operating in India.
* Supply chain management is a vast collection of techniques. Hence, selection of supply chain factors and strategies can be a complex process. In such a dynamic setting it is best to use qualitative research methodology (using case studies) to understand the situation.
* Furthermore face-to-face meetings with respondents can help provide understanding and information on several qualitative areas, such as: reasons for implementing specific supply chain factors (or strategies); customer needs data, and discussions and feedback on the questionnaire.
The secondary data needed for this study has been collected from various sources like Journals, annual report, Profit and loss account, Balance sheet, financial Statement of the company, online published document on internet, previous research report related to Tata Steel. This research is exploratory in nature; both primary and secondary data is collected.
Chapterisation: Plan of the study:
This research is focused on how Tata Steel implemented ERP system to manage its supply chain management to increase its ROI and benefit to the company, investor and people at large. This research consists of seven chapters.
Chapter 1. Introduction.
Chapter 2. Conceptual study of Supply Chain Management.
Chapter 3. Tata Iron and Steel Company- An overview.
Chapter 4. Implementation of ERP system SAP and E- commerce in Tata Steel.
Chapter 5. Performance Measures of Supply Chain Management.
Chapter 6. Relationship between supply chain management and performance in Tata
Chapter 7. Suggestions and Conclusion.
There are several limitations in this study.
The theoretical model derived from this research is only applicable to the high technology companies. The research is focused on single company operating geographically in Jharkhand, India.
The most significant weakness of this study can be attributed to the chosen case study research methodology. Yin (1994) cites several known limitations and criticisms of the case study research methodology. These include the lack of generalization, perceived lack of rigor, subjectivity, and voluminous documents. This study is an exploratory case study with a limited sample size. Therefore, the findings cannot be generalized beyond the context of this study. As an exploratory study, the goal of this research effort is to seek greater understanding that can lead to building a foundation for more extensive research in the future.
This research work has been completed after facing various types of difficulties because it is too tough to measure the success of an ERP implementation in a company. The first tough task was collection of data for the purpose of review. Since the data is related to implementation of any ERP systems are confidential of the company. Getting primary data from the company is very difficult. For being a private company the employees of the company are reluctant to give any information, which is specific to that company. Getting the response of the questionnaire was the toughest part in the collection of data, since the respondent were not willing to give their opinion to the questions. They left many of the questions unanswered. Through this thesis I have tried to give useful and positive result so that it can act as guidance for further research in this field.
SUMMARY OF THE CHAPTERS
This chapter serves as an introduction to the research. It comprises sections, which cover the importance of the study, objective of the research, scope of the study, Hypothesis of the study, source of data collection, a brief description of the methodology, an outline of the structure of the study, key definitions, limitations of this research, and the chapter’s conclusion.
Conceptual Study of Supply Chain Management
Globalization also brings foreign competition into markets that traditionally were local. Local companies are thereby forced to respond by improving their manufacturing practices and supply chain management. Experience shows that the gains to be made in cost, lead-time and quality through working in partnership with customers and suppliers are significant.
Supply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption
Ganeshan and Harrison have yet another analogous definition:
A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.
According to Wikipedia.org
Supply Chain Management (SCM): Supply chain management is the process of planning, implementing, and controlling the operations of the supply chain with the purpose of satisfying customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption
The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise.
Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers’ requirements.
The broader view of SCM is depicted in the below figure in a simplified supply chain network structure. This would explain the basic difference between Logistics and SCM. Supply Chain is inter-company integration of business process and relationships and where as Logistics is intra-company integration.
Figure 1.0: simplified supply chain network structure
Providing enhanced value to customers at the least Total cost Value, Velocity and Visibility.
Ultimate customer focus, Network of organizations working for common purpose and mutual benefits, Process orientation, Total systems thinking, Cost Dimension.
Tata Iron and Steel Company -An Overview
The history of steel making in India can be traced back to 400 BC when the Greek emperors used to recruit Indian archers for their army who used arrows tipped with steel. Many more evidences are there of Indians’ perfect knowledge of steel-making long before the advent of Christ. Archaeological finds in Mesopotamia and Egypt testify to the fact that use of iron and steel was known to mankind for more than six thousand years and that some of the best products were made in India. Among the widely-known relics is the Iron Pillar near Qutab Minar in Delhi. The pillar, built between 350 and 380 AD, did not rust so far —–an engineering marvel that baffles the scientists even today. Yet another engineering feat is the famous Sun Temple at Konark in Orissa, built around 1200 AD, where steel structurals were used for the first time in the world.
The Tata Group is almost 150 years old. It currently comprises 96 operating companies, which together employed some 357,000 people worldwide and had revenues of US$ 72.5 billion (Feb 2009) billion in 2008-09. Tata is active in seven major business lines: information systems and communications, engineering, materials, services, energy, consumer products and chemicals. Its 28 publicly listed companies have a combined market capitalisation of US$72.5 billion that is the second highest among Indian business houses in the private sector, and a shareholder base of over 2 million. The Group has operations in more than 54 countries and its companies export products and services to 120 nations.
Promoted in 1874 by Jamsetji Tata with a single textile mill, the group has always been controlled by the Tatas, a Parsee family of the close-knit Zoroastrian community, and the Tata Trusts.
Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), is the world’s sixth largest steel company, with an annual crude steel capacity of 31 million tonnes. It is the largest private sector steel company in India in terms of domestic production. Ranked 258th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies. Tata Steel is also India’s second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31, 2008. Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisitions, the company has become a multinational with operations in various countries.
Implementation of ERP system SAP and E- commerce in Tata Steel
SAP, an ERP system, was implemented at Tata Steel for better customer order management and fulfillment. SAP was introduced in the areas of sales and distribution, material management, Financial-Account Receivables and control.
Tata Steel has adopted SAP R/3 an ERP technology to take a lead in the competitive steel industry and through constant learning, innovation and refinement of its business operations, has transited seamlessly from a production-driven company to a customer-driven one. Tata Steel planned a big-bang approach of going live with all the modules at the same time, in just a span of eight months. Driven against the speed of time, the pace of implementation was fast with all activities backed by a lot of thought process and meticulous planning. On 1st November 1999 Tata Steel pulled off a big bang implementation of all SAP modules at one go across 46 countrywide locations, as per the set deadline.
Phase I – To Extend SAP in Works with FICO, MM, PP & QM
Phase II – To implement SAP modules such as Asset Management & Budget management sub-modules of FICO, Plant maintenance, Human Resources, Production Optimizer (such as SAP APO)
Phase III – SEM (Strategic Enterprise Management)
• The solution covered 85% of Tata Steel’s business-process requirements.
• SAP has a large customer base and is a leader in India’s ERP market.
• The solution incorporated Y2K functions that Tata Steel desired.
• SAP could provide skilled implementation partners.
Figure 1.1: SAP Implementation In Tata steel
In 2001, Tata Steel and SAIL, two of the largest steel companies in South Asia, realized the significant contribution that the Internet and eBusiness could make to reengineer the steel supply chain and they joined hands to set up metaljunction services limited which went on to become the world’s largest eMarketplace for steel, and India’s largest eCommerce company within a short span of time. Metaljunction was renamed to mjunction to give a new corporate identity to the company.
Services provided by mjunction
E-distribution: In a bid to cut down on the distribution cost and serve customers better, Tata Iron & Steel Company Ltd proposes to adopt the “hub and spoke” concept, as recommended by the management consultant, Booz Allen Hamilton. The essence of the concept is as follows: Tata Steel will gradually do away with its stockyards, in their place; it will set up at different locations hubs which will act as stocking points of generic materials to serve a much larger number of customers. There will be rail connections between the hubs and the company’s Jamshedpur plant and road connections between the hubs and various consumption centers in the region concerned. A beginning has already been made. The company has closed down nearly a dozen of its 28 stockyards and the closure of the rest will be undertaken in due course, as and when the VAT is in force.
The first hub, located within the Jamshedpur plant itself, has already started functioning on an experimental basis. At least four more are in view. These will be located at Sankrail near Kolkata, Vijayawada, Nagpur and Delhi. A sub-hub might also be considered for Faridabad to cater to the specific requirements of the customers in the region. A total investment of about Rs 70 to Rs 80 crore is being planned for setting up the hubs. While the company will provide the land and the handling equipment, it will not participate in the day-to-day running of the hubs. Instead, the day-to-day operation will be left to the private vendors. The company is believed to have already identified the vendors. A move is afoot to make the hubs at Sankrail and Vijayawada operational in the current financial year itself. The lands about 20 acres at Sankrail and 30 acres at Vijaywada – have been identified. This is followed by the one at Delhi.
Logistics and Delivery Time
Tata Steel puts a lot of emphasis on enhancing logistics in order to improve delivery time, reduce transportation cost and better inventory management at stockyards located at strategic points. The import / export logistics is handled by its TKM Division. Tata Steel’s expertise in both in-bound and out-bound logistics makes its Ferro Alloys and Minerals Division (FAMD) the preferred supplier of imported thermal coal to customers in India. Tata Steel has its own stockyards and exclusive berths alongside both Haldia and Calcutta ports, equipped with sophisticated material handling equipment, to ensure damage-free smooth shipment and manned by trained personnel, well-versed in handling logistics and loading. Besides, storage is planned in conjunction with experts and the actual loading is supervised by an internationally reputed independent inspection agency.
Channel Finance In Tata Steel
e-Collection: MetalJunction has offered buyers the convenience of paying for materials with a simple click of the mouse. A cash management service arranged in association with Citibank and HDFC has expanded the scope of e-selling to include the collection of money.
Tata Steel and MetalJunction are working together to not only increase the quantities of products sold over the last fiscal year but are also identifying new products to be sold through this highly efficient route. Channel finance MetalJunction provides a unique service of arranging finance for the distributors of Tata Steel on an online, 24X7 basis. MetalJunction has negotiated with some leading private and foreign banks in India to offer credit to the distributors of Tata Steel. This has ensured that Tata Steel need not offer credit on sales. This has increased realisations and lowered the working capital requirements of Tata Steel.
Graph 1.0: Shows penetration of channel finance
The above graph is just a pictorial depiction of the continual & sustainable increase in channel Finance as a proportion of Sale towards regular Distribution Channel of Tata Steel. Credit Sales of Tata Steel have steadily decreased over the period from Fiscal 2002 to Fiscal 2008.
e-Selling: Tata Steel initiated the first online e-Sale through MetalJunction in the month of February 2002 and since then has sold 221,259 MT. The products that Tata Steel has sold through MetalJunction are: HSM Defectives, HSM POR, GP Coils, LP Defectives, Prime Billets and Secondary Products. The results have been extremely encouraging for Tata Steel, with products being sold to customers all over the country. The prices obtained by MetalJunction have been reflective of the market situation.
The entire cycle time of selling materials is reduced by the speed and efficiency with which on-line competitive bidding events can be created and managed. Through intensive market-making efforts and the use of technology, MetalJunction is bringing in both, greater efficiencies to processes and greater focus to the sale of non-core products of Tata Steel.
MetalJunction.com commenced e-selling in February 2002 and has worked with its clients to migrate products from the traditional offline process to the online platform. Till 31 March 2003, MetalJunction.com sold 258,723 MT of steel aggregating Rs.343 Crore.
MetalJunction.com offers two types of e-selling services:
Full Service on a business process outsourcing(BPO) mode MetalJunction.com takes end-to-end responsibility of selling client’s low ‘value’ and/or standard products.
Undertaking market research and market-making activities to generate buyer leads.
Creating suitable market lots to ensure maximum participation from buyers.
Conducting the auction event Fulfillment services Undertaking collection of payments, like earnest money deposit and principal.
Ensuring fast and secure handling of money. MetalJunction.com has tied up with Citibank and HDFC Bank Collecting sales tax documents- Managing customer complaints.
The Process Flow of sales order in SAP
This is a unique fully automated 4-step process starting from Sales Order to Money Receipt generation in Tata Steel SAP R3 system and finally dispatch of materials from the stock-yard which is powered by the integrated channel finance application designed, developed and hosted
—>STEP I———->STEP II———–>STEP III————–STEP IV—>
Fig 1.2: The Process Flow of sales order in SAP
100% secured receivables
100% timely payment
Increased buying power of the distributors
Improved margin and supply chain visibility
Single window in terms of visibility of MIS
Challenges in implementing SAP
ERP implementation is not as simple as installing software package since it involves a lot of changes to be done in the mindset of the people of the company to be successful. The paper looks at these factors and discusses how adoption of new ERP system results in the creation of improved processes, practices and capacities. These quality initiatives mandate a transformational change in the mindsets, attitudes and culture and focuses on critical elements like leadership, employee involvement, training and education, teamwork and many others. These critical elements create a foundation, which facilitates ERP implementation.
As Tata Steel works toward its goal of becoming a top player in the world steel market, it faces several challenges and opportunities. These include:
• Operating in a competitive market
• Supporting ambitious growth plans
• Reshaping its business processes and IT infrastructure
Performance Measures of Supply Chain Management.
Supply chain performance measures can be classified broadly into two categories qualitative measures (such as customer satisfaction and product quality) and quantitative measures (such as order-to-delivery lead time, supply chain response time, flexibility, resource utilization, delivery performance, etc.). In our study we consider only the quantitative performance measures. Improving supply chain performance requires a multi-dimensional strategy that addresses how the organization will service diverse customer needs. While the performance measurements may be similar, the specific performance goals of each segment may be quite different.
Quantitative metrics of supply chain performance can be classified into two broad categories: Non-financial and financial.
1) Non-Financial Performance Measures
2) Financial Measures
Non-Financial Performance Measures
Important metrics include: cycle time, customer service level, inventory levels, resource utilization, performability, flexibility, and quality. There is a detailed discussion of these in. We will focus here on the first four measures.
* Cycle time
* Customer Service Level
* Inventory Levels
* Resource utilization
Cycle time or lead-time is the end-to-end delay in a business process. For supply chains, the business processes of interest are the supply chain process and the order-to-delivery process. Correspondingly, we need to consider two types of lead times: supply chain lead-time and order-to-delivery lead-time. The order-to-delivery lead-time is the time elapsed between the placement of order by a customer and the delivery of products to the customer. If the items were in stock, then it would be equal to the distribution lead-time and order management time. If the items were made to order, then this would be the sum of supplier lead-time, manufacturing lead-time, distribution lead-time, and order management time. The supply chain process lead time is the time spent by the supply chain to convert the raw materials into final products plus the time needed to reach the products to the customer. It thus includes supplier lead time, manufacturing lead time, distribution lead time, and the logistics lead time for transport of raw materials from suppliers to plants and for transport of semi-finished/finished products in and out of intermediate storage points. Lead-time in supply chains is dominated by the interface delays due to the interfaces between suppliers and manufacturing plants; between plants and warehouses; between distributors and retailers; etc. Lead time compression is an extremely important topic because of time based competition and the correlation of lead time with inventory levels, costs, and customer service levels.
Customer Service Level
Customer service level in a supply chain is a function of several different performance indices. The first one is the order fill rate, which is the fraction of customer demands that are met from stock. For this fraction of customer orders, there is no need to consider the supplier lead times and the manufacturing lead times. The order fill rate could be with respect to a central warehouse or a field warehouse or stock at any level in the system. Stock out rate is the complement of fill rate and represents the fraction of orders lost due to a stock out. Another measure is the backorder level, which is the number of orders waiting to be filled. To maximize customer service level, one needs to maximize order fill rate, minimize stock out rate, and minimize backorder levels. Another measure is the probability of on-time delivery, which is the fraction of customer orders that are fulfilled on time, i.e. within the agreed-upon due date.
Since inventory-carrying costs can contribute significantly to total costs, there is a need to carry just about enough inventories to satisfy the customer demands. Inventories held in a supply chain belong to four categories Raw materials, work-in-process (unfinished and semi-finished parts), finished goods inventory, and spare parts. Each type of inventory is held for different reasons and there is a need to keep optimal levels of each type of inventory. Thus measuring the actual inventory levels will provide a useful picture of system efficiency.
A supply chain network uses resources of various kinds: manufacturing resources (machines, material handlers, tools, etc.); storage resources (warehouses, automated storage and retrieval systems); logistics resources (trucks, rail transport, air-cargo carriers, etc.); human resources (labor, scientific and technical personnel); and financial (working capital, stocks, etc.). The objective is to utilize these assets or resources efficiently so as to maximize customer service levels, minimize lead times, and optimize inventory levels.
There are several fixed and operational costs associated with a supply chain. Ultimately, the aim is to maximize the revenue by keeping the supply chain costs low. Costs arise due to inventories, transportation, facilities, operations, technology, materials, and labor. The financial performance of a supply chain can be evaluated by looking into the following items.
* Cost of raw material
* Revenue from goods sold
* Activity-based costs such as material handling, manufacturing, assembling, etc.
* Inventory holding costs
* Transportation costs
* Cost of expired perishable goods
* Penalties for incorrectly filled or late orders delivered to customers
* Credits for incorrectly filled or late deliveries from suppliers
* Cost of goods returned by customers
* Credits for goods returned to suppliers
Typically, the financial performance indices can be put together using the following major modules: activity based costing, inventory costing, transportation costing, and inter-company financial transactions.
Developing and maintaining a supply chain performance measurement system represents one of the more significant challenges faced in SCM initiatives. However, if supply chains are to be improved, decisions need to be based on objective performance information and will require sharing of this type of information with key supply chain members. Organizational willingness to share information with other supply chain members is a critical selection criterion for SCM membership. An organization that is willing to receive information from other supply chain members but is reluctant to share information is a poor candidate for inclusion in an SCM initiative. In today’s economy the battlefield is shifting from individual company performance to what we call Supply Chain Performance. Supply Chain Performance refers to the extended supply chain’s activities in meeting end customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner. Supply Chain Performance crosses company boundaries since it includes basic materials, components, subassemblies and finished products, and distribution through various channels to the end customer. It also crosses traditional functional organization lines such as procurement, manufacturing, distribution, marketing & sales, and research & development. The Internet is a key enabler of both supply chain performance improvements and richer supply chain performance measures.
Relationship between Supply Chain Management and performance in Tata
The introduction of SAP R/3 solutions within Tata Steel has led to efficient business processes, enhanced customer service, reduced costs, improved productivity, accelerated transaction time, workflow management and reduction in the number of credit management errors.
“Post the introduction of the SAP solution, the results have been terrific. The company has spent close to Rs.40 crore on SAP implementation, and has saved Rs.33 crore within a few months of implementation.
Working Capital Cycle
Working capital cycle, also known as the asset conversion cycle, operating cycle, cash conversion cycle or just cash cycle, is used in the financial analysis of a business. The higher the number, the longer a firm’s money is tied up in business operations and unavailable for other activities such as investing. The cash conversion cycle is the number of days between paying for raw materials and receiving cash from selling goods made from that raw material.
A short cash conversion cycle indicates good working capital management. Conversely, a long cash conversion cycle suggests that capital is tied up while the business waits for customers to pay. The longer the production process, the more cash the firm must keep tied up in inventories. Similarly, the longer it takes customers to pay their bills, the higher the value of accounts receivable.
On the other hand, if a firm can delay paying for its own materials, it may reduce the amount of cash it needs. In other words, accounts payable reduce net working capital
* Raw material holding period has increased by 55% while there has been an efficient Management in the stocks in process and stores & spares holding period this is depicted by a decrease of 60% and 30% in the holding days respectively.
* The credit receivables period has also been brought down considerably by about 77% which shows the efficiency of the debtors’ management.
Gross working capital during the period 1998-99 was highest for the company. We can see from the graph it came down slowly from 1999 onwards.
Graph 1.1: Working capital analysis.
The inventory management
The inventory management in 2003-04 and 2004-05was best in the company history. Online availability of data will further improve Inventory Management in the stockyards, leading to better customer services. Lead time required to process orders, settle complaints, develop new products and reconcile accounts, in substantially lesser time.
Graph 1.2: Inventory turnover (In Days)
A reduction in lead time for spending approvals, now 18-20 days from 65-70 days earlier. The inventory carrying cost has drastically deflated from Rs. 190 per ton to Rs. 155 per ton. To add to this, there have been significant costs savings through management of resources with the implementation of SAP.
The average debtors to turnover were down to 9 days from 68 days cent, which was the highest in the period from 1996 to 2009.
Graph 1.3: – Debtors Turnover in number of days
Labour productivity in Crude Steel has been continuously improving from 93 Tons/ Man year in 1996-97 to 152 Tons/Man year in 2000-01 and stands at 370 Tons/Man year in 2008. Labour productivity has multiplied three from 1999-2000 to 2008. Total number of employees has come down from 78,276 in March 1993 to 48,252 in September 2001 and about 35,000 in 2008.
Graph 1.4: Shows labour productivity from 1996-97 to 2008-09
Refers to EBITDA divided by total revenue. EBITDA margin measures the extent to which cash operating expenses use up revenue. EBITDA is a rough approximation for cash flow and it is calculated as revenues – expenses (excluding taxes, interest, depreciation, and amortization). EBITDA is the acronym for Earnings before Interest, Taxes, Depreciation, and Amortization. It is a non-GAAP metric that is measured exactly as stated. All interest, tax, depreciation and amortization entries in the Income Statement are reversed out from the bottom line Net Income. It purports to measure cash earnings without accrual accounting, canceling tax-jurisdiction effects, and canceling the effects of different capital structures.
EBITDA differs from the operating cash flow in a cash flow statement primarily by excluding payments for taxes or interest as well as changes in working capital. EBITDA also differs from free cash flow because it excludes cash requirements for replacing capital assets (capex).
Graph 1.5: EBITA/Turnover (%)from 1996-97 to 2008-09
Customer satisfaction was a real issue at Tata Steel. When orders were placed, customers were promised a due date that was not based on hard data, plant capacity or raw-material availability. Orders were delivered when promised only about 50 percent of the time. To make matters worse, customers would generally not receive advance notice if their order would not be ready as promised, and this lack of communication burdened customer resources down the line, in the finishing and distribution channels.
The plant would often scramble to address the needs of high-priority customers, further alienating customers whose orders may have been just as important but less urgent. Without any method to analyze forecast versus actual performance, it was impossible to design improvements in the overall delivery system.
Realizing that its industry-leading position was hanging in the balance, Tata started the improvement process by articulating its strategic drivers: improved customer satisfaction and higher asset utilization. To address customer needs, the company conducted an exhaustive survey to establish detailed customer requirements. The survey yielded three imperatives. First, provide an accurate promise as to when the order would be delivered. Second, in the event that the order due date would be missed, notify the customer early in the process-not at the point of the missed delivery. And third, accurately project a revised delivery date so that the customer could modify its schedules accordingly.
It leads to complete transparency in customer ledgers, orders, stock ledgers, dispatches and credit lines. It is Internet enabled and allow customer to use SAP to get information on their orders.
With SAP solution Tata Steel can now update their customers on a daily basis and provide seamless services across the country improving customer management. The availability of online information has facilitated quicker and reliable trend analysis for efficient decision-making. Besides the streamlined business process reduces the levels of legacy system and also provides consistent business practices across locations and excellent audit trail of all transactions. Team ASSET at Tata Steel.
Tata’s forecasting ability has also improved dramatically. Prior to implementing supply chain software, the company had no systematic insight into how to evaluate the accuracy of its forecasts for demand as well as for raw materials. Now, it has the tools to analyze its forecast predictions against actual results, enabling root-cause analysis capabilities to identify what has caused the differences. “Improving our ability to forecast allows the company to use due-date-based planning, which helps them to meet demand with higher utilization.
Recommendations and Conclusion
Recommendations and Conclusion
From the above analysis and discussion it can be concluded that, Supply chain management has become not just a question of efficient logistic process, but is related to the growth and survival of organization(s). With customers becoming more demanding in their requirement of services from the suppliers, the construction of an efficient and integrated supply-chain has assumed paramount importance. Information technology plays a major role in the formation of the supply chain. Efficient dissemination of information upstream and downstream is a major requirement for the implementation of the supply chain, IT provided with Internet, EDI and GroupWare’s and other application software’s. After analyzing the complete implementation I have the following suggestion which can be added to the present ERP environment to make it more effective.
1. In purchasing, the approval process is not integrated with the company’s e-mail
system, which results in additional unnecessary effort, less control, and longer lead
times. Tata Steel could streamline its purchasing process by using mySAP ERP e-
mail integration for workflow approvals. In addition, the company could save time
and streamline communication by using the new SAP solutions, rather than
spreadsheet the solution to handle its budget process outside.
2. Evaluate SAP functions for a monthly rolling budget forecast based on a total cost
breakdown for existing cost centers. This would speed up the budget process
dramatically and free management from non-value-added tasks. It would enable the
use of what-if scenarios to show the projected budget impact of various business
3. In strategic purchasing, the company must increase the share of annual rate
contracts in total purchasing, and there is an opportunity to reduce inventory-carrying
costs by improving the share of vendor-managed inventory.
4. Tata Steel faces considerable data duplication in its purchasing functions, as some
parts have multiple universal material codes. With the company’s current expansion
plans, the number of parts is bound to grow, with a parallel increase in duplication.
Tata Steel’s interaction and integration processes, as well as its IT landscape, are also
likely to expand. Because data interfaces between SAP and non-SAP software are
batch oriented, processing for real-time updates is not possible. In addition, there are
multiple systems in place at Tata Steel that involve a variety of independent software
vendors using different technology and interfaces. In plant maintenance, employees
have found it difficult to enter work-order data. This can be resolved through the use
of mobile asset management during maintenance operations. Meanwhile, if Tata Steel
hopes to increase total steel capacity using the same number of resources, it must free
up personnel from routine activities.
5. In manufacturing, a real-time analytics engine could aggregate and deliver a unified
version of events, alerts, key performance indicators, and decision-making support to
production personnel through role-based dashboards.
6. Meanwhile, if Tata Steel hopes to increase total steel capacity using the same number
of resources, it must free up personnel from routine activities. The new SAP software
offers untapped potential for Tata Steel. Currently the company exerts an
unnecessarily large effort to gather information on product batches for production
and sales order processing. Industry-specific functions within the new software could
solve this problem, which is typical for many mills.
7. Drive Additional Value Through Extending the SAP Footprint Tata Steel has
additional requirements that could be satisfied by other SAP applications. Because
the company releases significant amounts of emissions into the atmosphere during its
manufacturing processes, for example, the management of emission certificates is a
very important issue that could be enhanced through further automation.
8. Evaluate the SAP NetWeaver(r) Master Data Management (SAP NetWeaver MDM)
component for powerful data cleansing functions. This component can also be helpful
for unifying and maintaining customer data.
Enable Further Benefits through Better Decision Making
Available reporting processes are insufficient at all departments. Standard reports
don’t cover management needs. Creating reports takes too much effort; non-SAP data
must be entered manually. The heads of the individual business units seem to be
looking for a better solution that will help them eliminate routine data and events and
enable them to focus on exceptions. To support business decision-making, data must
be collected from different Systems; this is currently done without seamless system
9. Evaluate the SAP xApp Analytics composite application, which helps managers
quickly create a wide range of reports and graphic representations of data without
programming. Evaluate manufacturing intelligence dashboards. These dashboards
are user centric and role based, filtering out daily routine data and helping managers
retrieve data that is important to them. Available roles include plant manager,
production supervisor, quality manager, and maintenance technician. The dashboards
also offer powerful functions for data cleansing.
Recommendation’s for next steps
Based on this experience, we developed a wide range of recommendations – from capturing additional value from the company’s current IT investments to deploying new technology to support future innovation.
Using an approach similar to Gartner’s Magic compares the potential value creation (on the horizontal axis) for each recommendation with the effort (on the vertical axis) involved in its implementation. We can see in Fig 1.3 that enterprise service-oriented architecture (enterprise SOA) (12) has the highest potential value creation but also comes with very high effort. On the other hand, analytics (13) and dashboards (14) require relatively low effort but return good value. Strategic purchasing with the mySAP Supplier Relationship Management (mySAP SRM) application (5), a master roll-out template (19), and two composite applications (7 and 9) have a positive balance of value for effort.
Fig 1.3: Gartner’s Magic
From the above analysis and discussion it can be concluded that, Supply chain management has become not just a question of efficient logistic process, but is related to the growth and survival of organization(s). With customers becoming more demanding in their requirement of services from the suppliers, the construction of an efficient and integrated supply-chain has assumed paramount importance. Information technology plays a major role in the formation of the supply chain. Efficient dissemination of information upstream and downstream is a major requirement for the implementation of the supply chain.
The purpose of this research was to provide better understanding how SAP and e- commerce has helped the Tata Steel to be more competitive. We have conducted an extensive analysis and managed to collect sufficient information in order to provide comprehensive answer to the research question. The purpose of this study had been mainly to describe a phenomenon within a specific area of research. We aimed to get a better understanding of the phenomenon by answering the research questions connected to SAP, e-procurement and other initiative taken by Tata Steel to make them more competitive in the market. The analysis and interpretation of the data from the case study was drawn out in Chapter 6. After going through the analysis we can assume that all the research issues were answered. However, there are several limitations to this study and further research can be undertaken.